Friday, March 10, 2017

Risk-off Sentiment Pared 1Q17 Gains; 10y UST Surpasses 2.6%

10 March 2017

Global Sukuk Markets Weekly

Risk-off Sentiment Pared 1Q17 Gains;
10y UST Surpasses 2.6%

Highlights & Performance

¨Index:Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR)
and Dow Jones Sukuk Total Return (DJSUKTXR) index continued its drag to 105.12 (-0.24% WoW) and 162.2 (-0.29% WoW)
respectively, with the index’s yield widening more than usual on a weekly basis
by 6.5bps to 2.1%. Laggards this week were GBHK 27 (+18bps), DIBUH 17 (+17bps)
and INDOIS 18-19 (+16bps). 10y UST yields rose by 12.7bps WoW to 2.61% driven
by: (i) the auction of the multiple Treasury bonds during the week (3y, 10y and
30y); and (ii) ADP National Employment Report indicated private payrolls grew
by 298k jobs in Feb-17, the largest increase since Dec-15 (consensus: 187k). On
the other hand, WTI oil prices fell below the USD50 psychological level to
USD49.7/bbl during the week.

¨Economic Updates:In Asia,
Malaysian reserves were unchanged at USD95bn as at end Feb-17 from Jan-17,
while the coverage to retained imports improved marginally to 8.5 months from
8.4 months as at 15-Feb. In Indonesia, foreign reserves grew for the third
consecutive month, rising by USD3bn from the preceding month to USD119bn at
end Feb-17. Growth was attributed to: (i) capital inflows; and (ii) foreign
exchange receipts, which includes tax revenues and the government’s oil and gas
export proceeds. Looking to the Middle East, manufacturing improved slightly
in the region as the Emirates NBD UAE PMI indicated some improvement from
55.3 in Jan-17 to 56 in Feb-17, while Saudi Arabia’s PMI also improved to 57 in
Feb-17 from 56.7 in Jan-17. Saudi Arabia’s non-oil exports declined further
to -10.3% YoY in Dec-16 from -9.10% YoY in Nov-16.

¨USD Sukuk Market: Primary
issuances have remained quiet for the last two weeks ahead of the FOMC meeting as investors have priced in a rate hike at the upcoming
meeting. Nevertheless, we maintain our USD sukuk supply forecast of up to
USD23bn in 2017 after a record year of primary issuances in 2016 of USD21.74bn,
in line with our forecast. Expect limited upside on returns on moderately
stable oil prices given that the IMF forecasts USD55-58/bbl in 2017.

¨MYR Sukuk Market: IDB plans
to issue MYR sukuk after a three year hiatus.. This would make it the fourth ringgit denominated sukuk
from the issuer. IDB has not determined whether it will be a private or public
placement. The IDB board approved the issuance of a MYR400m sukuk issuance for
2017. In 2016, IDB rose its ceiling of its sukuk programme to USD25bn from
USD10bn as the bank plans to expand its financing activities

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